//  12/18/18  //  In-Depth Analysis

Take Care is pleased to present a series of posts offering thoughts on how Congress might address key issues in antitrust law.

America has a monopoly problem. Many product and labor markets are highly concentrated; average firm markups have increased from 21% in 1980 to 61% in 2018; since 1979 the bottom 90% of the workforce has seen its pay shrink relative to productivity; new firm formation has fallen to a thirty-year low; and corporations are using record profits to buy back stocks rather than invest in productive facilities or personnel. Most troublingly, a small number of technology firms have captured control over key arteries of commerce and communications, both worsening the general concentration problem, and spurring additional rounds of consolidation throughout the rest of the economy as large non-tech firms seek to fight back through defensive mergers.

Since 2015, policymakers and members of Congress have identified enfeebled antitrust laws as a culprit of extreme concentration and as a potential site of major reform. Last year Senator Amy Klobuchar (D-MN) introduced the “Consolidation Prevention and Competition Promotion Act of 2017,” which would strengthen enforcers’ ability to block anticompetitive mergers, most notably by shifting the burden of proof in giant mergers to the merging parties. Over the summer, Senator Corey Booker (D-NJ) introduced a bill to place an 18-month moratorium on large food and agriculture mergers and to establish a commission to study ways to strengthen antitrust oversight of the food sector. With Democrats controlling the House starting in January, and with anti-monopoly shaping up to be a key policy plank for 2020, proposals for new legislation are likely.

Antitrust reform could take several shapes, ranging from mild modifications of existing standards to a more foundational revamp of both the analytical framework and institutional structure of antitrust enforcement. The nature of the deficiencies in the current approach suggests that the latter course will be necessary to rehabilitate antitrust, a project that will require careful work to ensure the resulting regime both serves the goals of competition law and is administrable.

Creating an antitrust regime that both redresses the current market power crisis and prevents its recurrence will require reform in at least four areas.

First, Congress must step up its oversight of the antitrust agencies and push federal enforcers to enforce existing laws. No doubt, courts have significantly weakened certain areas of antitrust. But, in several instances, the agencies have aided the courts in this project, adopting narrow interpretations of the law and constraining their own authorities. In other instances, the agencies have failed to enforce the law, blessing acquisitions that have substantially reduced competition. By bringing more merger enforcement and monopolization cases under existing law, the agencies would illuminate which areas of the law invite legislative fixes and would show themselves to be worthy stewards of any expansion in authority. Robust oversight should be a prerequisite of any deeper legislative fix.

Second, any new legislation should clearly articulate the anti-monopoly values that animate antitrust. Since the late 1970s, the Supreme Court has held that the purpose of the antitrust laws is to promote “consumer welfare,” a concept that represents—depending on who you ask—allocative efficiency, consumer surplus, or some other metric of welfare. In practice, centering antitrust around consumer welfare has, as I describe in a Yale Law Journal essay, embedded at the core of anti-monopoly law a remarkably pro-monopoly theory of power.

Rearticulating the anti-monopoly values that underlie antitrust law is important because underlying values help instruct courts and enforcers on how to respond to uncertainty. Current antitrust doctrine expresses a chronic fear of false positives and barely registers the costs of false negatives, a posture that, as economist John Kwoka has shown in his studies on merger control, seems to systematically favor under-enforcement. By reasserting anti-monopoly values and refocusing analysis on a fair competitive process—rather than consumer welfare—Congress would reestablish antitrust on a coherent foundation, rendering the law less susceptible to misinterpretation and misuse.

The second area any robust proposal must tackle is monopolization, currently addressed primarily through Section 2 of the Sherman Act. Broadly, Section 2 prohibits acquiring or maintaining monopoly power through anticompetitive means. This area of antitrust law is especially critical in an era when markets throughout the economy are dominated by a small number of firms that enjoy significant market power. It is also the area of antitrust law that courts have most steadily eroded, dramatically shrinking the basis on which dominant firms can be found liable.

Efforts to rehabilitate Section 2 should include lowering the threshold at which a firm can be inferred to possess competition-distorting market power. Courts are not consistent on the exact market share they require to establish a presumption of monopoly power, but several require a minimum share of at least 70%.Creating a rebuttable presumption of dominance at a lower level of market share would subject a greater swath of dominant firms to closer antitrust scrutiny.
 

Invigorating Section 2 will also require fixing the legal standards around exclusionary practices. This would include, for example, revamping predatory pricing law to eliminate the recoupment requirement, which has all but extinguished predatory pricing claims. It should also include designating certain forms of price discrimination as an impermissible abuse of market power—a basis for liability that is now a dead letter in the United States, though it remains part of the competition toolbox in Europe, among other jurisdictions. Reviving discriminatory refusals to deal and a form of the essential facilities doctrine would further limit the mechanisms by which monopolistic and oligopolistic firms can exploit their market power to stifle competition. And affirming a per se prohibition against tying for firms with market power—an approach still reflected in Supreme Court precedent but that courts have avoided applying—would enable public and private enforcers to more forcefully target firms that improperly use their existing market power to gain an advantage in a distinct market.

Lastly, legislative reform should recommit the Federal Trade Commission to serving as an administrative antitrust agency, not only a law enforcer. This was the role that Congress designed the FTC to play: an administrative tribunal that would study markets and stay abreast of evolving business practices, expertise it would harness to create rules clarifying what practices constituted “unfair methods of competition”—a term whose interpretation Congress delegated to the Commission. In other words, Congress created the FTC so that antitrust law would develop in part through the work of “a commission at all times under the power of Congress, at all times under the eyes of the people,” and not only through “the varying judgments of different courts.” The goal was to inject antitrust enforcement with democratic accountability, predictability, and expertise.

Two under-used tools that the FTC could harness to better fulfill this institutional role are (i) its extensive authority to collect confidential business information and conduct industry studies, and (ii) its authority to define through rulemaking what constitutes “unfair methods of competition.” To encourage the agency to do so, Congress could specifically instruct the Commission to pursue rulemaking on competition matters where sensible antitrust rules are especially needed. This could include rules establishing criteria for assessing the legality of labor noncompete clauses and for assessing when firms should be liable for depriving rivals of access to an essential facility. In September, FTC Commissioner Rohit Chopra wrote a comment inviting the agency to resurrect rulemaking as a way of making antitrust more predictable and participatory.

Rehabilitating antitrust law and equipping both public and private enforcers to tackle the competition challenges of the digital age will also require strengthening merger enforcement and fixing a trail of damaging court rulings, such as Ohio v. American Express. Importantly, efforts focused on antitrust legislation should also keep in mind the broader competition policy toolbox, which includes levers embedded across federal agencies such the Department of Agriculture, Federal Communications Commission, Department of Transportation, Patent and Trademark Office, and US Trade Representative, among others, as well as state-level enforcers and regulators. Reforming antitrust law will be a key part of tackling undue concentrations of market power, but—as a law enforcement regime—antitrust itself will only get us so far. Harnessing this more expansive set of anti-monopoly tools will be critical for addressing the full scope of our monopoly problem.

 


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